Managerial Accounting and the

Business Environment
Chapter One

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Work of Management

Planni
ng Directing
and
Motivating

Controll
ing

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Planning

Identify
alternatives.

Select alternative that

does
the best job of furthering
organization’s objectives.

Develop budgets to guide

progress toward the
selected alternative.
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Directing and Motivating

Directing and motivating involves managing day-to-day

activities to keep the organization running smoothly.
Employee work assignments.
Routine problem solving.
Conflict resolution.
Effective communications.

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Controlling

The control function ensures

that plans are being followed.

Feedback in the form of performance reports

that compare actual results with the budget
are an essential part of the control function.

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Exh.
1-1

Planning and Control Cycle

Formulating
Begin
long-and short-term
plans (Planning)

Comparing actual
Implementing
to planned Decision plans (Directing
performance Making and Motivating)
(Controlling)

Measuring
performance
(Controlling)

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Exh.
1-2
Comparison of Financial and
Managerial Accounting

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Organizational Structure
Decentralization is the delegation of
decision-making authority throughout an
organization.

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Line and Staff Relationships

Line positions are directly Staff positions support and

related to achievement of assist line positions.
the basic objectives of an Example: Cost accountants in
organization. the manufacturing plant.
Example: Production
supervisors in a manufacturing
plant.

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The Chief Financial Officer (CFO)

A member of the top management team responsible for:

Providing timely and relevant data to support planning and control
activities.
Preparing financial statements for external users.

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The Changing Business Environment

Just-in-time production
Total quality management
Process reengineering
Business environment
Theory of constraints changes in the past
International competition twenty years
E-commerce
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Just-in-Time (JIT) Systems

Receive
customer Complete products
orders. just in time to
ship customers.

Schedule
production.

Receive materials Complete parts

just in time for just in time for
production. assembly into products.

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JIT Consequences

Improved Zero production

plant layout defects

Reduced Flexible
setup time workforce

JIT purchasing
Fewer, but more ultrareliable
suppliers.
Frequent JIT deliveries in small lots.
Defect-free supplier deliveries.
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Benefits of a JIT System

Reduced Freed-up funds

inventory
costs
Greater
customer
Higher quality satisfaction
products

More rapid
response to
Increased customer orders
throughput

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Total Quality Management (TQM)

TQM improves productivity by encouraging the use of fact

and analysis for decision making and if properly implemented,
avoids counter-productive organizational infighting.

Continuous
Improvement
Systematic
problem solving
using tools such is
as benchmarking

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Process Reengineering

Anticipated results:
A business process Process is simplified.
is diagrammed Process is completed
in detail. in less time.
Costs are reduced.
Opportunities for
errors are reduced.

Every step in The process is redesigned

the business to eliminate all
process must non-value-added activities
be justified.

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Process Reengineering versus TQM
Process Reengineering Total Quality Management
Radically overhauls Tweaks existing processes
existing processes. to realize gradual
Likely to be imposed from improvements.
above and to use outside Uses a team approach
consultants. involving people who
work directly in the
process.

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Theory of Constraints

A constraint (also called a bottleneck) is anything that

prevents you from getting more of what you want.

The constraint in a system is determined

by the step that has the smallest capacity.

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Theory of Constraints
Only actions 2. Allow the
that strengthen weakest link to
the weakest link set the tempo.
in the “chain”
improve the
process.
3. Focus on
1. Identify the improving
weakest link. the weakest
link.

4. Recognize that
the weakest link
is no longer so.
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International Competition
Increasing sophistication
in international markets.

Fewer tariffs, Improvements

Competition has
quotas, and in global
other barriers become worldwide transportation
to free trade. in most industries. systems.

An excellent management accounting system is needed

to succeed in today’s competitive global marketplace.
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E-Commerce

In recent years, many dot.com businesses

failed that might have benefited from
the application of managerial
accounting tools:
Cost concepts (Chapter 2)
Cost estimation (Chapter 5)
Cost-volume-profit (Chapter 6)
Activity-based costing (Chapter 8)
Budgeting (Chapter 9)
Decision-making (Chapter 13)
Capital budgeting (Chapter 14)

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Code of Conduct for
Management Accountants
The Institute of Management Accountant’s (IMA) Standards of
Ethical Conduct for Practitioners
of Management Accounting and Financial Management have
two major parts offering guidelines for:
❶ Ethical behavior.
❷ Resolution for an ethical conflict.

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IMA Guidelines for Ethical Behavior

Follow applicable laws,

regulations and
standards.

Maintain
professional
Competen
competence. ce

Prepare complete and clear

reports after appropriate
analysis.
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IMA Guidelines for Ethical Behavior

Do not disclose confidential

information unless legally
obligated to do so.

Do not use
confidential
information for
Confidenti
personal ality
advantage.

Ensure that subordinates do

not disclose confidential
information.
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IMA Guidelines for Ethical Behavior

Avoid conflicts of interest

and advise others of
potential conflicts.

Do not subvert
organization’s
legitimate Integrity
objectives.

Recognize and
communicate personal and
professional limitations.
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IMA Guidelines for Ethical Behavior

Avoid activities that could

affect your ability to
perform duties.

Refrain from Refuse gifts

activities that or favors that
could Integrity might
discredit the influence
profession. behavior.

Communicate
unfavorable as well as
favorable information.
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IMA Guidelines for Ethical Behavior

Communicate information
fairly and objectively.

Objectivity

Disclose all information

that might be useful to
management.

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IMA Guidelines for Resolution
of an Ethical Conflict
Follow established policies.
For unresolved ethical conflicts:
Discuss the conflict with immediate superior or
next highest uninvolved manager.
Make reference to the Sarbanes-Oxley Act passed
by Congress in 2002 in part to give legal protection
to those reporting corporate misconduct.
If immediate superior is the CEO,
consider the board of directors or
the audit committee.

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IMA Guidelines for Resolution
of an Ethical Conflict
Follow established policies.
For unresolved ethical conflicts:
Except where legally prescribed, maintain
confidentiality.
Clarify issues in a confidential discussion with an
objective advisor.
Consult an attorney as to legal obligations.
The last resort is to resign.

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Why Have Ethical Standards?

Ethical standards in business are essential for a

smooth functioning advanced market economy.

Without ethical standards in business, the

economy, and all of us who depend on it for
jobs, goods, and services, would suffer.

Abandoning ethical standards in business would

lead to a lower quality of life with less
desirable goods and services at higher prices.
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Codes of Conduct on
the International Level

The Guidelines on Ethics for Professional

Accountants, issued by the International
Federation of Accountants (IFAC), govern the
activities of professional accountants worldwide.

In addition to competence, objectivity, independence,

and confidentiality, the IFAC’s code deals with
the accountant’s ethical responsibilities in:
Taxes
Fees and commissions
Advertising and solicitation
Handling of monies
Cross-border activities.
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Certified Management Accountant

A management accountant
who has the necessary
qualifications and
who passes a rigorous
professional exam earns
the right to be known as a
Certified
Management Accountant (CMA).

Information about becoming a CMA and the CMA

program can be accessed on the IMA’s website at
www.imanet.org or by calling 1-800-638-4427.
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